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Inside the EU – Moldova Negotiations: Money on Condition of Reforms

1st March 2017

The European Union is going to put conditions for its new financial assistance for Moldova, following a critical report from the European Court of Auditors on the European Commission management of previous aid.

The European Commission and the Government of Moldova have started negotiations on a new 100-million-euro micro-financial assistance for the country. The proposal of the European Commission comes at the request of the government in Chisinau to support the budget after two years of political instability and economic stagnation caused by the major banking fraud scandal and the withdrawal of some international donors.

The assistance amounts to up to €100 million over two years’ period. 60 million of them will be offered as loans, and the rest as grants to help Moldova reduce the economy’s short-term balance of payments and fiscal vulnerabilities as well as to cover part of its external financing needs to 2018, which are estimated at €402 million.

Money under the condition of reforms

However, this money is not just going to be a partner’s backing to the poorest European country. The EU is putting conditions on implementing reforms in several key economic sectors and policy areas for the money to be disbursed. They include banking, public sector governance, anti-corruption, measures against money laundering and financing terrorism, reforms in the energy sector and improvement of the investment climate.

In the public sector, the EU will track closely the public administration reform, improvements in public procurement procedures and transparency of the state-owned companies’ accounts. In energy, the construction of a natural gas pipeline connecting Moldova with Romania and the independence of the national energy regulator have been benchmarked.

“No reforms, no disbursements”

Moreover, an European Commission official says all the three tranches of payments planned will be linked to proving results, underlining that the EU usually gives the first part without conditions.

The deal will include a clause of automatic interruption of funding in case of irregularities. “No reforms, no disbursements”, said the Commission official, adding that if the conditions are not met, Brussels could be able to stop payments at any moment.

The new, stricter requirements come after the publication in September 2016 of European Court of Auditors report on the EU assistance to Moldova which measures the EU support for Moldovan budget as “partial” and sums up that it “had a limited effect in strengthening the public administration”, while EU programs “were not sufficiently aligned to Moldovan strategies” for reforms.

The decision on whether Moldova will receive the 100 million EU assistance is expected in June. If European Parliament and the member states give their consent the first of the three tranches will be disbursed in July, the second – by the end of the year, and the last one in 2018.

Moldova is the biggest recipient per capita of EU funding among the EU’s Eastern neighbours. About 782 million euro has been allocated through the European Neighbourhood Instruments since 2007.

However, Moldova is still the poorest country in Europe. The economy is in recession since 2015 and the public debt has reached 100% of GDP.

The EU has provided macro-financial assistance to Moldova also in 2010-2012, when €90 million were paid in grants.